While the removal of GST from certain insurance policies is expected to bring down premium costs, the reduction may not match the full percentage of the exemption. This is mainly because insurers will no longer be able to claim input tax credit (ITC) on the GST they pay for administrative, operational, and service-related expenses. Without ITC, their overall costs are likely to rise, which can reduce the extent of the benefit passed on to policyholders.
However, despite this limitation, policyholders can still expect a noticeable reduction in premiums. The relief, though not absolute, will still ease the financial burden compared to the earlier structure where GST was fully applied on premiums. In short, while the GST exemption will not entirely eliminate costs due to the loss of ITC for insurers, it still provides a meaningful and positive relief for customers.
Key Questions Answered
Q. Renewals due before 22 September
A. GST applies whether paid before or after this date.
Q. What about grace period?
A. No relief; the original policy issuance date will be treated as the renewal date.
Q. Renewals due after 22 September
A. No GST charged.
Q. Already paid multiyear premiums?
A. Refund of GST unlikely for remaining years.
Q. New policy in freelook period?
A. You may cancel and repurchase after 22 September to benefit.
GST in Insurance: Current Rates
| Product | GST Rate (%) |
|---|---|
| Term life insurance | 18 |
| ULIPs (only on charges) | 18 |
| Retail health insurance* | 18 |
| Group health insurance* | 18 |
| OPD insurance | 18 |
| Riders | 18 |
| Endowment/Traditional (1st year) | 4.5 |
| Endowment/Traditional (renewals) | 2.25 |
| Single premium annuity policies | 1.80 |
*No GST relief.
⚠️ Premiums will reduce for retail policies after GST exemption, but returns on savings-oriented plans may decline due to ITC loss.
This means premiums may fall by only 12–15%.
Example
If insurers absorb ITC loss:
Base premium: ₹100 → remains ₹100
GST: ₹18 → ₹0
Total: ₹118 → ₹100
Premium relief = ₹18
If insurers increase base premium by 5%:
Base premium: ₹100 → ₹105
GST: ₹18 → ₹0
Total: ₹118 → ₹105
Premium relief = ₹13
Points to Consider
(1) Group insurance-linked expenses remain creditable, so GST exemption does not apply.
(2) Policies sold to NRIs under export provisions: related expenses can be set off.
(3) Expect higher retail policy volumes as costs go down.
(4) Claims ratio may improve with lower GST—similar to benefits seen in hospitals (GST cut to 5% on certain medicines, medical equipment).
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